Both oil refiners and renewable fuel processors are attempting to profit from the rising market for safe aviation fuel and renewable diesel. Still, as their most recent earnings showed, refiners have been more harmed by high pricing for feedstocks like soybean oil.
These renewable fuel products account for a small percentage of overall gasoline, diesel, and other product sales, but they are expanding. On the other hand, demand has pushed up the cost of the necessary ingredients, such as soybean oil and animal tallow. Refiners were forced to postpone plans to expand into the production of renewable fuels, but competitors that specialize in these fuels were able to switch to refining lower-cost feedstocks. In an interview with Reuters, Neste CEO Peter Vanacker remarked, “We’re making sure we’re not reliant on one or even the other feedstock.” “Margin management will become increasingly important in the future.”
Even as refiners flooded the market, companies like Renewable Energy Group Inc (REGI.O), Neste (NESTE.HE), and Darling Ingredients Inc (DAR.N) all topped expectations for second-quarter earnings. According to Dhruv Kharbanda, Tudor, Pickering, Holt & Co, at an investment bank as an associate, enterprises have more freedom in switching between feedstocks such as spent animal fat and cooking oil to manufacture in-demand renewable fuel.
On the other hand, refiners rely on higher-carbon feedstocks like soybean oil, which is more expensive because incumbent manufacturers have utilized up much of the leftover cooking oil. read more “Darling, Neste, and Renewable Energy Group benefited from feedstock versatility during the quarter,” the bank stated in a research note. “However, (CVR Energy) (CVI.N), as well as Marathon (MPC.N), emphasized the weak economics of operating soybean oil.”
According to the bank’s data, margins for producing sustainable diesel from soybean oil have averaged roughly $1.35 per gallon this quarter. In comparison, margins for producing the fuel from spent cooking oil have averaged around $2.28 per gallon. After the refinery geared up for production, Carl Icahn’s CVR Energy decided to postpone generating renewable fuels at the Wynnewood, Oklahoma.
According to Marathon Petroleum (MPC.N), the feedstock’s economics are “challenged,” according to Marathon Petroleum (MPC.N), which controls America’s second-biggest renewable diesel facility located in North Dakota, which primarily runs soybean oil. The heightened prices, combined with the oil’s relatively higher carbon intensity, limit refiners’ ability to profit on production.
Meanwhile, the company’s gross profit increased by more than 400 percent year over year due to processing a bigger percentage of lesser carbon-intensive materials, according to CEO Cynthia Warner.